The Toronto real estate market continues to weaken in July, with lower sales and an increase in new and active listings putting downward pressure on prices. Overall, prices are down 1-6% compared to the previous year and 17-21% below 2022 peak values, with further declines expected unless Bank of Canada rapidly start dropping the interest rate.
Three key factors affecting the market are interest rates, immigration, and unemployment.
The Bank of Canada cut interest rates by 0.25% in July, bringing the overnight rate to 4.5%. However, this hasn’t significantly boosted buyer activity, as affordability remains challenging despite mortgage rates at 4%. Even a 10% price decline won’t bring housing affordability back to historical norms.
Population growth remains high, though it’s no longer driven by international students. A reduction in non-permanent residents isn’t expected until 2027. Meanwhile, the unemployment rate in Toronto is 7.8%, accounting for a third of the national rate, and disproportionately affects young people and recent immigrants. This could force some non-permanent residents to leave if the labour market doesn’t improve.
The condo sector is particularly weak, with newly completed condos often facing negative cash flow, forcing some investors to sell. This issue, new since 2022, isn’t expected to go away soon. Condo rent prices would need to increase by about 40% over the next two and a half years, or mortgage rates would need to drop from 4.5% to 1% to prevent negative cash flow. The persistence of this problem is driving many assignment sales and below-cost investor sell-offs.
Despite the seasonal strength typically seen in the rental market, rent prices are gradually declining. The market remains a buyer’s market, especially in the condo sector, and affordability pressures are expected to continue.
If you’re thinking of buying, there’s plenty of inventory to choose from. If you need to sell, a professional can help you get the most for your home in this challenging market. Let’s chat—we’re here to help.
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